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Emotional appeal of charging for charity rings up the donations for favorite causes

Call it "soft-spot sales." Open up a person's heart and you can get them to open their wallet, too.

Financial institutions have been using the technique for nearly 20 years through products called affinity credit cards, which benefit nonprofit groups.

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Affinity cards bear the logo of the charity, as well as the issuer. That's why they are often confused with cobranded cards. But cobrand cards give perks and discounts to the user, whereas affinity cards are philanthropic. Each time a consumer uses the affinity card for a purchase, a balance transfer or a cash advance, the bank donates a percentage of the amount to the organization.

Are they worth it?
While affinity cards can give consumers a sense of purpose with their plastic, it pays to know the cost of spending for a cause. Small contributions to feed the hungry or house the homeless aren't worth it if high annual percentage rates and fees leave you in need of a few donations yourself.

APRs on affinity cards run between 15 percent and 22 percent, although it's possible to find them for less. Many carry annual fees. Card issuers are often tight-lipped about how much goes to the nonprofit groups, but the average is .05 percent, which translates into half-a-penny for every dollar.

If you charge $100, the bank gives 50 cents to charity. Do that every month for 12 months and your credit card spending would generate $6 a year for a needy cause. That's hardly enough to spark a warm, fuzzy feeling, especially if you're paying a bundle in interest.

Close-up look at 3 affinity cards
Here's a look at three leading affinity cards in the United States:
Ducks Unlimited MasterCard or Visa
Guest Card
Action for Animals MasterCard
MBNA America Bank (Delaware)
Retailers National Bank (Minnesota)
Associated Card Services Bank (Wisconsin)
14.96 fixed annual percentage rate; no annual fee; cash advance checks and balance transfers carry a 6.9 percent APR for six months; grace period of at least 25 days
21 percent annual percentage rate, except in Illinois and Ohio, where the APR is 21.6; no annual fee; grace period is 28 to 31 days
14.9 percent fixed annual percentage rate; no annual fee; 25-day grace period
The cause
Ducks Unlimited is a conservation group that preserves wetlands
Take Charge of Education, which gives scholarships to teachers and students, and supports arts and environmental programs in K-12 schools. The Target Guest Card has raised $19.2 million for the organization
Action for Animals includes a long list of groups, including the Society for the Prevention of Cruelty to Animals, humane societies, animal shelters and veterinary services
Donation percentage
Bank would not disclose
1 percent of purchases
.50 percent, or a half-penny for every dollar in purchases, balance transfers, cash advances

"The card has the most value for someone who uses it often but pays off the balance," says Alison DaSilva of Cone Inc., a Boston marketing firm that links companies and causes. "It is not for the person who carries a high balance."

Perks are fewer
In addition to their higher-than-average APRs, affinity cards seldom offer perks such as airline miles or cash-back rewards, although some feature discounts.

For example, the Elvis Presley Charitable Foundation Visa, issued by MBNA, offers 10 percent cuts on tickets to Graceland, souvenirs and selected hotels and restaurants in the King's old neighborhood. The card features an APR of 3.9 percent that jumps to 15.99 after four months and there's no annual fee. An undisclosed amount goes to "do good works for less fortunate and homeless people," according to the card application.

Contributions made through affinity cards are not tax-deductible because the donations are part of a contractual arrangement between the issuer and the charity.

Despite their cost, affinity cards are tremendously popular. Visa International estimates that by 2003, half of all credit cards issued worldwide will be affinity and cobrands.

Consumers like affinity cards because they are a token of something they feel strongly about and create opportunities to share their passion with others.

"Some people are very proud of the cause they support," says DaSilva. "It gives them something to talk about at the register. That kind of word-of-mouth marketing is invaluable."

And the winners are ...
Public education, crime, the environment and children's causes are the most popular. Alumni and animal organizations are hot, too.

One of the most successful affinity cards is issued by Retailers National Bank, an affiliate of the Target merchandise chain.

Target's credit card has generated $19.2 million for Take Charge of Education, which grants scholarships to students and teachers, and supports arts and environmental programs in schools. Target gives 1 percent of purchases to the K-12 school of a cardholder's choice. But the APR on the card -- 21 percent in every state except Illinois and Ohio, where it's 21.6 -- is a big bite for balance-carriers.

The appeal of affinity cards to consumers is mostly emotional, but financial institutions make significant tangible gains from them. In exchange for potential donations and the mass exposure that a bank's marketing power offers, charities turn over their mailing lists.

"Affinity organizations come with names attached," says Pierre Giroux, senior manager of affinity cards for Royal Bank of Canada. "It's an opportunity for a bank to get access to millions of individuals who could be cardholders."

Highly competitive market
For that reason, the affinity card market is highly competitive, with banks vying for ties with charities -- especially ones with big-income donors.

Giroux says Royal Bank began aggressively pursuing nonprofit partnerships about three years ago when leading affinity issuers MBNA and BankOne/First USA stepped into his territory.

"We've been pushed hard by MBNA and BankOne," he says. "We were not about to allow them to come into our marketplace and start poking around."

Banks like affinity card customers because they tend to be loyal, preferring to stick with their cause rather than switch to a card with a lower rate.

"Consumers put those cards at a little bit higher priority than bank-brand cards," says Paul Jamieson, a banking analyst with Gomez Advisers. "Retention is a big factor."

Jamieson says banks also take fewer losses among the charitable set. "Affinity customers produce lower chargeoffs than the industry average."

For consumers who pay their bills in full each month, affinity cards can be a fun, convenient way to add a little altruism to their everyday spending.

"The credit card industry in general is up there with cigarettes and the liquor industry in terms of not getting good press," says Jamieson. "This is one of those win-win situations."


-- Posted: March 20, 2000




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